The results of a more-than-year-long Senate investigation into counterfeit parts being used in U.S. military equipment were released Monday and - as they had from the start - investigators are putting most of the blame on China.

"Our report outlines how this flood of counterfeit parts, overwhelmingly from China, threatens national security, the safety of our troops and American jobs," said Sen. Carl Levin, D-Michigan, chairman of the Senate Armed Services Committee, which launched the investigation.

The probe began in March of 2011. But it was not easy for the committee staffers to conduct because the Chinese government refused to grant visas to committee staff to travel to mainland China as part of the investigation.

Last year, as the committee was still pushing for the visas, Sen. John McCain, R-Arizona, the committee's rankling Republican, said, "It should be in Chinese interest not to have counterfeiting of these electronic parts going on because it would harm legitimate Chinese companies as well."

The committee reviewed in detail approximately 1,800 cases of suspect counterfeit parts. All told, the 1,800 cases involved more than 1 million counterfeit parts.

The investigators dug through the supply chain for three types of suspected counterfeit parts on U.S. military aircraft:

The SH-60B is a Navy helicopter that hunts for enemy submarines and assists with surface warfare. The investigation found that a part that compromised the copter's night-vision system contained counterfeit parts that investigators traced back to China.

The probe found counterfeit parts in the systems that tell pilots of the C-130 and C-27 cargo planes about the aircraft's performances. The part could have caused those systems to go blank. Again the part in question was traced back to China.

The P8-A is a Navy version of the Boeing 737 used for anti-submarine warfare and other duties. The Navy is testing the aircraft now and intends to buy more than 100 of them. But the test planes contained a reworked part that never should have been on the airplane. The part was used but made to look new. The part, investigators found, originally came from China.

But the committee didn't reserve all its blame for China; some of it was directed right at the Pentagon itself.

The report said in each of the three cases that the committee investigated in depth, the Department of Defense was unaware that counterfeit electronic parts had been installed on certain defense systems until the committee's investigation.

Even though the report just came out, the committee has already taken action to deal with the problem. Levin and McCain offered an amendment to the 2012 National Defense Authorization Act to address weaknesses in the defense supply chain and to promote the adoption of aggressive counterfeit avoidance practices by DOD and the defense industry.

The amendment was adopted in the final bill signed by President Barack Obama on December 31, 2011.

Part of that law will mean that when a contractor finds bad parts on a weapons system, the contractor or the parts supplier will pay to fix the problem. In the past, those costs were often borne by the DOD.

Pentagon spokeswoman Col. Melinda Morgan gave CNN this response to the report: "We are aware (the Senate Armed Services Committee) has issued their report on counterfeit parts and look forward to reviewing it. The Department takes very seriously the issue about counterfeit parts. We are working aggressively to address this issue to include implementing section 8.18 of the FY12 NDAA."

Levin and McCain hope this aggressive push against fake electronic parts will help beyond the American military.

According to the committee, the Semiconductor Industry Association (SIA) says, "counterfeits cost U.S. semiconductor companies more than $7.5 billion annually in lost revenue, a figure SIA says results in the loss of nearly 11,000 American jobs."

CNN reached out to the Chinese embassy in Washington for reaction but did not immediately receive a response.

soundoff(114 Responses)

Thomasjes

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A big part of the problem is that there are loopholes that allow these parts to enter the supply chain. I knew about an investigation with NVG and counterfeit parts where the supply managers were not properly trained on managing paperwork and accountability. A authorized repair depot was soliciting business with a flyer advising troops "send to us for repair/reset because we do not require paperwork". People who put in the requisition for parts were dealing with an approver who had a grudge against those who kept ordering. He approved purchases only for his cohorts and denied everyone else in the US/THEM battle that has gone on since the beginning of time. The denials opened the path for fraud and the no paperwork enticement further promulgated it. The authorized manufacturers stopped production all together of the parts because the orders stopped coming. The American people had to bear the cost of re-launching the product line and expediting it, as well as the personal gain by the people who were selling the parts to the units as "new" when they were refurbished and counterfeit – absolutely and 100% not MILSPEC. You can't blame just any one agency or any one organization. It is a lack of communication, a lack of training the new property holders who typically rotate every 6 – 24 months.

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Old news! I work for DOD procurement support. DOD lets DLA (Defense Logistics Agency) buy crap hand over fist and say they are the procurement agency of choice. No inspection no verification just buy it put it in the depot. We have more parts that were made in china than Wal-Mart!

The only way to fix this problem is to address the root-cause, which is greed. Greed is very hard to tackle because it has become a huge global problem. However, I have a simple solution to fix this problem. STOP SENDING F'ING E-WASTE TO THIRD WORLD COUNTRIES. These countries do not have a magic E-waste box that they put this stuff in and make it magically disappear. WTF did they, the brilliant people who thought sending our e-waste to China was a good idea, think the Chinese were going to do with it? Pushing the problem back soley on manufactures does not fix or address the problem. The government is largely to blame for letting deals like this happen and for allowing the amount of outsourcing/exploitation by US companies.

I think there is a lot of misconception in the comments. First, the Chinese are not "manufacturing" these counterfeit chips. Rather they are harvesting the chips from the three million tons of eWaste we send them every year. The harvesting techniques (as detailed in the report) – even if it is the right chip, and often it isn't – result in undependable chips. (See http://www.businessweek.com/go/tv/counterfeit for a video tour of the Chinese reprocessing). Second, the majority of semiconductors are manufactured in this country. Nevertheless, we need Congress to do more to keep hi-tech industry in the US, e.g., permanent R&D tax credits, more visas for the foreign students we educate here and then throw them out so they can go back to their countries and compete with us, etc.

Six hundred and some odd billion dollars a year spent on defense, and we can't afford to build the stuff here? No wonder China's been able to go from 0-60 on their anti-ship missiles, 5g fighter, and other hardware. We handed them the blueprints and said 'build this please, oh yeah, we're probably gonna use it to kill you when this whole Taiwan situation pops off, so build it real good, too".

Why does the defence committee have to go to China to investigate? The crooks who put cheap Chinese parts instead of genuine American parts are right here in the USA i.e. the defence contractor. In all countries it is the department of defence that makes defence equipment, but in USA corporate world is the god and it has to be outsourced so that big corporations can make huge profits by endangering US security.

check the f-22 🙂 chinese parts 😦 supposed to be american parts 🙂 but are not 😦 thats why it doesnt work 😦 american defense companies are supposed to be making these parts not buying them from china its in the contract..all of them should be pulled in front on congress and then fined billions of dollars

Never quite understood how US high tech companies could export work to China. You'd think they'd have learned by now that sending the work to China is basically an open invitation for their intellectual property to be stolen and put in cheap copies. But, most of these companies apparently just don't understand that short term gain comes at the expense of larger long term gain. But, of course, they can only care about the what the shareholders want tomorrow. They always seem to forget that if a company did what is best to maintain their products, the stock price, over the longer term, would take care of itself.

True. The corporate executives want a dollar today at the cost of bankruptcy tomorrow. They do so because their bonuses are many times more than their salaries, and they get their fat bonuses only if the profits exceed targets. They are hugely cutting down RnD costs to bloat the profits. That is the reason American companies have started falling behind.

"If it's out there, we'll find it." Seems to be a common sales pitch with the suppliers of hard-to-find parts. http://www.oemtechnology.com/componentbrokers/index93.html . The euphemism for parts salvaged from junked equipment could well be excess inventory. These brokers may claim ISO9000 certification, but I wonder what requirement that places on verifying the pedigree of the parts they sell. If corporate management has no policy in place and people are under pressure to meet deadlines then I can see how wishful thinking can overrule good sense. Then there is the issue of the procurement people not being fully aware of the engineering ramifications of using marginal parts as well as design engineering not being fully aware of the pitfalls of bad source selection.

Very simple answer, profit and greed! Did JP Morgan Chase behave honorably, did Moran Stanley follow the rules when they warned their favored clients that the Facebook IPO would flop? No, Chase had their eye on the big prize if their risky bets went right. Morgan Stanley had billions in stock to sell to suckers so they could make their juicy profits! Can we blame defense contractors for taking the same bets? If all goes well, bigger profits! If not, just dial up the taxpayers to pay the bill!
Remember, we absolutely must deregulate to improve our economy! Ha, ha, ha!

That was tried and failed. In our global economy, we don't make everything necessary to meet the hardware needs of the DOD. To pass such a bill leads to the inability of the DOD to meet mission due to the lack of materials and parts.

The Chinese make all of our cell phones, smart phones, and much of our computers. Our government and the Pentagon say they are out enemies, will spend trillions overtime to support a vast navy against them. A few Chinese engineers could never add some extra circuits to the cell phones, smart phones, and pc's? Like listen to anyone, locate anyone, turn off your equipment at any strategic time? Imagine the entire phone system going down because they make it? And they could deny that they did it.

Just wonderting, does your father or mother was raped by a chinese, and accidently, you was born?
If you don't like chinese or chinese products, don't buy it AT ALL. if you don't like your iphone, throw it away.
Look at your home, which part is not made in china. who told you made in US is good. nobody eat america beef, outside of the US. cause only us eat mad cow. nobody eat genetic food outside of the US. Only you country, only, has some many super fat stupid guys like you site at home, and complain the world.

I don't understand. Whenever my company made parts for the military, we had to use raw materials from the US and make the parts in the US. A government official would then check all the paper work, inspection reports, and made sure we had all our X's and T's crossed

I worked for defense companies as a circuit board designer and every component had to be Mil-Spec complied to. Vendors had to be qualified in Mil-Specs. If non spec parts were used, these had to be documented and approved by DOD procurement. Obviously some contractors have bought cheap components and billed the gov't for more expensive ones. Very unamerican I say.

Well, just because it's MIL Spec that doesn't mean its made in the US. Tons of electronic parts are simply not made in the US. There's no choice unfortunetly. Piece parts especially like some chips, capacitors, etc...

May 22, 2012 at 7:37 pm |

Frank

What happened, though, when your company got bought by a foreign company?
DOD contractor Raytheon is actually a JAPANESE company. There's a "Military Systems Division" that's specifically US- only. Yeah sure. Preserve the myth at any cost.
Heck, IBM PC division is a Chnese company!

Sorry, Raytheon has NEVER been a Japanese company and IBM sold it's PC business to Lenovo of china. If you have FACTS, put them here, otherwise its just dribble.

May 22, 2012 at 6:24 pm |

StanCalif

Your company was just too stupid to avoid buying from the Chinese and making a much bigger profit! Paperwork means nothing, anyone can create documents instantly! As long as the paperwork looks real, who cares?
Follow the GOP and deregulate so more of this can happen!

You'd think we'd be able to rely solely on American sources from raw materials to parts manufacture for equipment used to defend our country, especially if it's new or experimental. You don't think the Chinese wouldn't have an idea what we're developing by looking at the list of parts our government keeps getting?!? What if we go to war or relations are strained? We just go without the materials and weapons our country needs to keep itself safe? This is a prime example of needing manufacturing and production jobs back in America and not overseas.

I totally agree. FAILURE!! That’s what the Americas Summit turned out to be as it ended today. ABSOLUTE FAILURE! And for the USA and Obama it was a complete embarrassment! His secret service agents got caught with a CHEAP $47 WHORE along with military personnel and Sec of State danced the night away at the Havana Club drinking and getting STUPID! Oh yes this is the new and improved Nazi AmeriKa! A total DISGRACE to the entire planet! Dignity? Our leaders have NO DIGNITY today because they come from the crap bottom of the can!! Is it just me or does it seem like our leaders do anything they can to darken the reputation of our country and people? How the hell can ANYONE on this planet respect the US and the American people now? And you’re still wondering why the world hates us???

Barack Obama is a total FOOL! The biggest thing he had to say is that part of his “job” at the summit was to check out his and Michelle’s next vacation spot! Excuse me but is that ignorant or is that IGNORANT! I am ashamed and disgusted by the behavior of US leaders and their side kicks at this summit! And guess the hell what? NOTHING WAS RESOLVED OR AGREED ON. Surprised? You shouldn’t be because all that the Latin American leadres wanted to talk about was the SEX SCANDAL involving Obama’s SS laying with CHEAP $47 WHORES!! This is outrageous! NO this is BEYOND outrageous! It shows what our nation has sunk to. THE CESSPOOL!!

Sorry this all started with Clinton and continued with Bush 2. We compromised security long before Obama. His policy of transparency enforced by the average Internet user has brought to light problems rampant for years. no matter who s President next, if we don't pressure them to keep open adminstrations, this will continue.

May 22, 2012 at 5:08 pm |

Thomas

Sorry aaacccc I don't remember Bush's secret service guards sleeping with hookers while on the job, and while Clinton was a filanderer, he was better at doing business abroad than Obama.

May 22, 2012 at 7:26 pm |

StanCalif

So, you trust Romney, the business man? What business shenanigans have we just learned about in the past few days? Chase (using their off shore office) placed casino style bets and lost! Morgan Stanley failed to notify anyone, except their favored clients, that the Facebook IPO would blow up! What we need is MORE deregulation so that the 1% can make even more money! Screw everyone else!

May 22, 2012 at 9:26 pm |

Paul

Let me get this straight. We borrow money from the Chinese, which we then give back to them for fake military parts? If a business sold you a fake fire extinguisher which didn't work and your house burned down, wouldn't you sue them? This seems like a way to at least lessen out trade deficit with them if we just sue them over their unethical and illegal business practices. Fake military parts have to be putting our soldiers sailors and airmen in danger.

The parts don't "sneak" into our supply chain. Someone makes a conscious effort to use them because they are cheaper. Why doesn't the DoD incoming inspection detect this? I KNOW for a FACT the these parts can be identified with the EXACT thorough inspection procedures the government has in place. This is not a mistake. Somebody is intentionally flowing these parts into the supply chain and they are making it right through the inspection process.

May 23, 2012 at 9:10 am |

StanCalif

Sue a Chinese businessman? Are you kidding!
If this were so simple, we should sue Iraq, Afghanistan and Pakistan! Where are all our wonderful lawyers?

More government pork – pure and simple. We make it so easy for phantom companies to submit huge invoices that are paid. My tax dollars at work? Nope. More is wasted from the administration level to solve a problem that should have never existed.

It is like the chicken or the egg come first question. We should blame both. Neither one is innocent

May 23, 2012 at 12:57 pm |

DaleW in MA

US DOD firms should NEVER be importing parts, ever! It's just another example of greedy corporations sleezing a buck here or a million there. The US Military's inventory should be made in the USA all the way and the primary DOD contractors should be held criminally responsible if they get caught. Too bad they'll get off by buying all the politicians with money they 'earned' overcharging on previous contracts.

All of the smart US cell phones are made in China. Which makes it even easier to undermine the US. The Chinese would never re-engineer components in phones so that they could listen to anyone, locate anyone, and turn off all the phones in the US, or would they?

USA should require all companies who deals with defense related programs to manufacture all related components here in the USA WITH NO EXCEPTIONS. It might be expensive, but so too the lives of our men/women in uniforms and it is good for our economic health..

I am so amazed and shamed to read this "....the committee criticised China for failing to shut down counterfeit manufacturers ....."

Pass the buck, blame someone else!

Shouldn't it be the responsibility of you to check the components before using it. If you buy a fruit, and it has a worm in it would you use it?

Such a total shame that the whole manufacturing process, leave alone defense related components has been outsourced. Now China effectively has controls over US military related components? What a shame!

What exactly are they calling counterfeit? Are these parts falsely labeled as MIL-STD-883 qualified or was there some other problem? I seem to recall more than a few scandals over the years where US semi-manufacturers were caught doing that exact same thing. DoD is a standing joke when it comes to procurement, they have long abandoned science and engineering in favor of a workforce which is mostly superficial low-level ( and unemployable) management types. The hardware is just the tip of the iceberg, the real hidden timebomb is their buggy and poorly tested software.

Good question, and one that was not addressed in the article. Some are recycled. Old electronics are sent to china, disassembled, the chips are polished up and returned to the market as new products. Some are produced by second party manufacturers and have incomplete Quality Assurance and are then labeled erroneously (essentially putting grade A on a grade B product). We certainly do not want a $300 million plane to crash because a chip out of a 1985 VCR was polished up and sold as new. The problem is once everything is assembled, how do we identify the chip that was assembled in a sub-standard "clean room".

I would have thought that it would be in the nations security interests to keep the entire supply chain of military parts in the US rather than destroy the supply chain in the US and help build it up in a country that at times can seem pretty hostile towards the US and the West in general. Yeh it might initially cost more to buy parts made in the US but wouldn't it turn out cheaper in the long run with the jobs it creates and taxes those jobs pay?

I have been in the electronic wire and cable industry supplying MIL spec cable to the military since 1985. We had literally thousands of US and Canadian manufacturers which we supplied back then and found that US DND officials were approving parts from China and India at record pace in order to save a buck. I personally wrote dozens of letters between 1986 until 1999 pointing out that the majority of foreign parts were substandard or fake. Congress and DND ignored this again trying to save a buck but causing the thousands of North American suppliers to close their doors leaving only a hand full left. Only now they are putting in measures in place to blame China is not the answer. US Inspectors in China and India are paid off the same as those officials from those countries the answer is simply force the remaining manufacturers to bring production back to North America for ultimate control the way it was in the 80's..

Steve,
Congress didn't ignore it, they abetted it since many of their big donors we deeply involved in outsourcing the processes and jobs you mentioned to China / India / etc.

Combine that with closed loop engineering & logistics career paths on the DoD side. Program officers no longer have to return to the field / fleet and live with or actually experience the consequences of their short cuts and trade-offs. That's a buck that gets passed to their relief, who is usually only concerned with procuring the latest whiz-bang system since it's well know that promotions are made that way and not fixing lingering problems.

Engineers mostly come from college straight to DoD and too often have no actual military experience using these systems in a real world environment. Thus they don't really understand or appreciate maintainability.

The DoD civil service world is the poster child for the Peter Principle, i.e. promote the idiots up and away so they can do their damage elsewhere. Which all too often creates upper tiers filled with the utterly clueless.

It all speaks volumes for our Soldiers, Sailors, Airmen and Marines who manage to get the job done despite the crazy culture that runs things.

The DoD knows nothing about DoD procurement. It is all outsourced to contractors who cut corners. That way, when something fails, it is someone else's fault. I know, my business is a specialty alloy provider for DoD contracts (has been since 1983) and the past 10 years have devastated us. We ALWAYS follow the rules and our payback for that is loss of orders. It's very expensive to meet all the government's demands, unless you aren't a US company.

May 23, 2012 at 9:05 am |

Captain Obvious

This is not a mistake. This has happened on purpose. The fact is tha there are many people within the U.S. , including the military and politics, who really do not like America. Policies that forced U.S. technology to go directly to China (Clinton), to aquisition regulations that force U.S. manufactures to outsource everything, including intellectual property,or go bankrupt, are the result.

Even idiots get something right sometimes. This whole debacle was not do to idiots. It is intentional.

I have been in the electronic wire and cable industry supplying MIL spec cable to the military since 1985. We had literally thousands of US and Canadian manufacturers we supplied back then and found that US DND officials were approving parts from China and India at record pace to save a buck. I personally wrote dozens of letters between 1986 until 1999 pointing out that the majority of foreign parts were substandard or fake. Congress and DND ignored this again trying to save a buck but causing the thousands of North American suppliers to close their doors leaving only a hand full left and only now they putting in measures in place to blame China is not the answer. US Inspectors in China and India are paid off the same as those from those countries the answer is simply force the manufacturer to bring production back to North America for better control.

You are spot-on. My company (US) is a supplier for government contracts and our business has fallen sharply in the past 10 years. We have rigorous inspections and constant demands to produce paper trails for MIL Spec components to prove that all our material is made in the USA, which it is. We've lost so much business to China and India and I constantly wondered how they could get the business when the demands on us are "It must be completely produced in the USA". I'm all for 100% USA manufactured and produced parts being used for all military applications, but then you hear stuff like this and think, "What the H@LL?!" Our own military is cheating on us and our businesses are desperate for work. It all comes down to the almighty dollar, and ours is worth less and less every day.

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